South Africa's World Cup host cities allege 'bid rigging'

5 cities demanding $394M

A view of Soccer City stadium during the closing ceremony for the 2010 World Cup in Johannesburg July 11, 2010. Five host cities are now demanding reimbursement, claiming construction companies rigged the bidding process. (Oleg Popov/Reuters)

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At least five of South Africa's host cities for the 2010 World Cup want hundreds of millions of dollars back from construction companies because they colluded and inflated prices when building stadiums and other infrastructure for the historic tournament, an association representing the cities said Thursday.

The South African Local Government Association said Johannesburg, Cape Town, Durban, Port Elizabeth and Polokwane were overcharged on World Cup projects and could collectively seek as much as 3.9 billion rand ($394 million) in total in damages.

The potential claims follow a larger investigation by the Competition Commission, where 15 companies agreed to pay a total of $147 million in fines in a fast track settlement to avoid prosecution for "rigged" projects in South Africa between 2006 and 2011, which include World Cup work.

One of the construction companies fined, WBHO, said the only way to guarantee to local World Cup organizers in 2006 that the stadiums could be built on time was for "the larger construction companies to meet."

But SALGA estimated in documents that collusion led to Cape Town being overcharged by up to $220 million for the picturesque ocean-side stadium — which cost close to $730 million — and Johannesburg by as much as $61 million for work on and around the showpiece Soccer City, which hosted the World Cup final.

Protests in Brazil over similar spending

South Africa's central government spent more than $3 billion on the first World Cup in Africa. In Brazil, similar spending on the 2014 World Cup and 2016 Olympics led to mass demonstrations in the country during the Confederations Cup last month.

SALGA's Joel provided examples of what his organization called "bid rigging" for World Cup stadiums which "impacted" host cities. SALGA said "the cartel" of companies overcharged by between 10 and 30 per cent.

For Cape Town's stadium, which hosted a World Cup semifinal, agreements also were reached between companies that whoever lost out in the bidding for the $729-million project would still get money from the others, Joel said. In Johannesburg, another "loser's fee" was agreed for Soccer City work, he said, and companies allegedly got together and settled on a 17.5 per cent "mark-up" for work on Port Elizabeth's Nelson Mandela Bay Stadium, which had a quarterfinal and the third-place match.

WBHO, which displays panoramic images on its website of Cape Town Stadium, Durban's Moses Mabhida Stadium and Polokwane's Peter Mokaba Stadium as some of its projects, said Thursday that construction companies got together only to ensure stadiums were finished in time.

"WBHO is firmly of the opinion that the purpose of the industry initiative was not to allocate stadia between the various construction companies, or to inflate the tender prices relating to the stadia," the company said.

WBHO declared 21 rigged projects overall in the industry and was fined the highest amount, around $31 million, by the Competition Commission because it had the biggest turnover. The fine represented only 3.9 per cent of its turnover, WBHO said. It said only one of its projects involved in the settlement related to the World Cup, and "that issue did not result in inflated prices."

Liviero, involved in the bidding for the stadium in Polokwane said it "voluntarily came forward and disclosed information to the Competition Commission relating to anti-competitive practices that occurred in the past," according to Joel.

However, Liviero group chief executive Neil Cloete said in an email to the AP that no South African city "was prejudiced by our actions."

Other companies implicated in collusion for World Cup projects didn't respond to requests for comment.

A sixth municipality, Nelspruit, also could have been overcharged for the Mbombela Stadium, but an ongoing criminal case involving alleged fraud in those construction contracts prevented it from pursuing damages at this time, Joel said.

The Competition Commission offered companies the chance to admit involvement in collusion and bid rigging in exchange for more lenient penalties. Three hundred building projects in South Africa worth an estimated $4.7 billion were initially identified, the commission said, eventually leading to the fining of companies including Aveng, Murray and Roberts, Stefanutti and WBHO — who were penalized the biggest amounts.

Aveng wasn't involved in colluding in World Cup work, but the other three were, according to Joel. The cities now want to negotiate damages with companies as part of the commission, he said, but also could pursue claims in civil court after the commission concludes.